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Business Description GENERAL The Company is a leading insurance and financial services company with operations that provide (i) annuity products such as individual variable annuities and fixed MVA annuities, deferred compensation and retirement plan services and mutual funds for savings and retirement needs to over 1 million customers, (ii) life insurance for income protection and estate planning to approximately 500,000 customers and (iii) employee benefits products such as group life and group disability insurance for the benefit of over 15 million individuals. According to the latest publicly available data, with respect to the United States, the Company is the largest writer of both total individual annuities and individual variable annuities based on new sales for the year ended December 31, 1996 (according to information compiled by LIMRA and VARDS, respectively), the eighth largest consolidated life insurance company based on statutory assets, as of December 31, 1995, and the largest writer of group short-term disability benefit plans and the second largest writer of group long-term disability insurance based on full-year 1995 new premiums and premium equivalents (according to information reported to EBPR). The Company's assets have grown at a compound annual growth rate of 36%, from $23 billion in 1992 to $80 billion in 1996. The Company has achieved rapid growth of assets by pursuing a strategy of selling diverse and innovative products through multiple distribution channels, achieving cost efficiencies through economies of scale and improved technology, maintaining effective risk management and prudent underwriting techniques and capitalizing on its brand name and customer recognition of the Stag Logo, one of the most recognized symbols in the financial services industry. During this period, the Company has attained strong market positions for its principal product offerings -- annuities, individual life insurance and employee benefits. In particular, the Company holds the leading market position in the variable annuity industry based on sales for the year ended December 31, 1996. The Company's sales of individual variable annuities grew from $1.8 billion in 1992 to $9.3 billion in 1996, and, for the year ended December 31, 1996, the Company had a 13% market share (according to information compiled by VARDS). During this period of growth, the Company's separate account assets, which are generated principally by the sale of annuities, grew from 36% of total assets at December 31, 1992 to 62% of total assets at December 31, 1996. The Company believes that such asset growth stems from various factors including the variety and quality of its product offerings, the performance of its products, the effectiveness of its multiple channel distribution network, the quality of its customer service and the overall growth of the variable annuity industry and the stock and bond markets. However, there is no assurance that the Company's historical growth rate will continue. See "Risk Factors -- Risks Associated with Certain Economic and Market Factors". Management believes the Company's substantial growth in assets, together with management's effort to control expenses, has made the Company one of the most efficient competitors in the insurance industry. In 1995, the Company had the ninth lowest ratio of general insurance expenses to statutory assets, an industry measure of operating efficiency, of the fifty largest U.S. life insurers, based on statutory assets. The Company's ratio improved to .64% in 1996, from .72% in 1995 and 1.38% in 1992 as compared with the average ratio of 1.50% for the fifty largest U.S. life insurers for the year ended December 31, 1995, based on information compiled by A.M. Best. The Company is a newly-organized holding company formed in December 1996, which holds virtually all the annuity, individual life insurance and employee benefits operations of The Hartford. In addition, The Hartford owns certain life insurance operations internationally (through wholly owned subsidiaries in Spain, the United Kingdom and The Netherlands) acquired in connection with the acquisition of companies primarily engaged in property-casualty insurance. The Company is a direct subsidiary of Hartford Accident and Indemnity and an indirect subsidiary of Hartford Fire. Hartford Fire is a direct wholly owned subsidiary of Nutmeg Insurance Company, which is a direct wholly owned subsidiary of The Hartford. The Hartford is among the largest domestic and international providers of commercial property-casualty insurance, property-casualty reinsurance and personal lines (including homeowners and auto) coverages. On December 19, 1995, ITT distributed all the outstanding shares of capital stock of The Hartford to ITT stockholders of record on such date in connection with the ITT Spin-Off. As a result of the ITT Spin-Off, The Hartford became an independent, publicly traded company. INDUSTRY OVERVIEW The life insurance and annuity industries recently have been influenced by certain savings trends and demographic factors. The United States Census Bureau reports that the number of individuals aged 45 to 64, which represents the Company's primary market, will grow from 55.7 million in 1996 to 71.1 million in 2005, making this age group the fastest growing segment of the U.S. population. In addition, the Bureau of Labor Statistics forecasts that individuals in the United States will live approximately 18.6 years beyond the age of their retirement. These emerging demographic trends have significantly influenced the growth of the Company as, in management's view, the "baby boomer" segment of the population has become increasingly concerned about retirement and the public's confidence in the ability of government-provided retirement benefits to meet retirement needs diminishes. The Company also has benefited as employer-provided defined benefit plans and other non-cash compensation have become used increasingly as a means to facilitate savings for retirement. Moreover, as the overall population ages, the Company believes that individuals will focus their attention on efficiently transferring wealth between generations. As a result, management believes that an increasing number of individuals will be attracted to the Company's variety of savings-oriented insurance products, with tax-advantaged status, in order to both fund their retirement years and protect accumulated savings. In addition, management believes that group life and group disability insurance will continue to be an important employee benefit due to the growing emphasis in recent years on the non-cash component of employee compensation. The Company also believes that the continued growth of small businesses may result in the overall growth of in force group insurance for the insurance industry. Management expects that an increased demand for high-quality services in the group insurance industry will result in continued growth in the Company's sales, particularly if the Company successfully expands the range of services offered in connection with its group disability products.